Wednesday, June 15, 2005

The 70 or so business types that gathered in a Holiday Inn Select conference room in Fredericksburg Tuesday morning didn’t appear to need a pep-talk on the power of free markets. But Bill Howell gave them one anyway.

During a two-hour face-off against advocates of spending billions more in state funds on transportation, the speaker of Virginia’s House of Delegates rejected any talk of raising the state’s gasoline tax. Instead, he called for more public-private partnerships, more toll roads and maybe even selling off some of the state’s major road infrastructure to raise money.

Government needs to question “what it does, why it does it and how it does it,” Howell said. “History has demonstrated time and time again that market forces work” in key infrastructure, such as telecommunications. “Why not highways, bridges and tunnels? I want to make free markets in general, and public-private partnerships in particular, a much bigger part of Virginia’s transportation future.” More.

5 Comments:

There are a few more details in the Free Lance Star article on fredericksburg.com. Howell hypothesized a $3 billion take on the sale of the Dulles Toll Road and the Bridge Tunnel. But he said it in front of a business crowd, who fully understood that the $3 billion would be paid over time and much much more in future toll revenues. Saddling our children with debt is bad enough, but selling off our vital transporation assets and charging them future generations tolls to use them -- I stand by my quote in the Free Lance Star. We'd better think that idea through. Later in the program a man got up and described the toll bridge in Sydney Australia, which was paid off in eight years because they charged a mega toll. Howell was honest enough to say in response that under the scenario he was describing, the tolls would not come off in the future. I think we can have a pretty good debate between (A) a mix of taxes and tolls and market sources and (B) selling the family farm and then having to rent it back from the landlord for perpetuity.

Yes, it's dumb. It's just rhetoric and nothing more. He's trying to appeal to people who hear the word "privatize" and then need to change their pants.

There are some projects where private-public cooperation is great. Selling our state assets to private companies is not a great idea.

Remember - demand for roads has a low elasticity. Meaning: demand doesn't respond much to price increases. Giving businesses a monopoly on a road or bridge strikes me a wrong. Those who complain about tax increases would complain extra about outrageous tolls. Why would they make the tolls low? Everybody needs to get to work. The price ceiling would be extremely high...

I have a copy of a report concerning traffic density, population density, road density, and GDP. It is from the World Bank.

One of the issues in the report concerns whether, since roads are a non-market item, they would be undersupplied or oversupplied by government, especially with respect to autos, which are a market item.

It turns out that across fifty countries studied, the supply of roads correlates strongly with GDP and almost nothing else. the relationship is far stonger than to population.(Causality was not determined, Subpatre.)

The study also considered Urban areas as compared to countries. Urban areas have higher road density, higher cars per area, and more miles traveled per area, resulting in more congestion. When the entire country was considered all values were lower, meaning congestion is less in the country as a whole as compared to its urban areas.

The study also concluded that road to area ratios changed more slowly in urban areas than in the country, because cityscapes are durable and more road there are highly expensive. Most new roads are built in less heavily populated areas.

Across all urban areas studied, auto use was strongly correlated with GDP. The idea that auto use could be curtailed by increasing density was discounted, instead, if decreasing auto use was the goal, then price should be raised through gas taxes or other user fees.

The use of rail was compared to use of auto, and the conclusion was that rail is more suited to freight transport.

The bottom line (absent proof of causality) seems to be that, if you want to impoverish people, then just deny them roads.

It takes lots of price pressure to influence people's behavior. A gas tax increase would need to be in the upwards of $2-3 before it affected demand significantly...and even in that case, it would simply push people towards fuel effecient cars.

That was pretty much the take on the article I mentioned. It takes a lot of pressure to influence behavior, price or no, why else would people endure so much senseless congestion? They also calculated the saturation point at which no more cars would be purchased, and that number turned out to be far higher than the actual number of cars in use (per 1000 population) in any developed nation!

What was interesting was that the trends were entirely consistent from sparsely populated places to densely populated, and from poor to developing to wealthy. They also concluded that even though roads were not a market good, that governments did a good job of providing them as if they were: that is there was neither a surplus or a dearth of roads, considering the economics and physical durability of urban regions.

While causality was not shown, what they did do was calculate correlation coefficients for many other variables which might have an influence: All were lower than the correlation to GDP.

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As a career-long journalist, I'm a publisher of blogs and electronic newsletters. I am deeply concerned about the irresponsible direction our country is taking, especially the decline of ethics in our business and political classes.

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